I think that it's kind of mistaken to attempt to put this whole thing in terms of 'neighborhoods and restaurants'. It's just not the same as on line businesses which purvey information goods.
The marginal cost of an information good is usually zero or quite low, food costs something. Food is not easy to replicate, information goods are super easy to copy and distribute. 37signals' products are used worldwide; Beppe's Trattoria is really only available to people within a short distance.
That same neighborhood sometimes wants Chinese, or Greek etc, etc.
Given those two statements, and the sheer numbers on the internet, it will be a long time indeed before we reach the limits you talk about.
That being said, if you open an restaurant and serve canned spaghetti, you're probably not going to see high levels of success.